Comparing IFRS to GAAP Essay Sample

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Some steps which both the FASB and the IASB have taken in regards to moving the fair value measurement for the financial instruments have come a long way. FASB and ISAB are each individually, for the majority moving forward towards a fair value measurement for the financial instruments areas. Each believes in the fair value measurement rule to be a much more accurate description of how a company’s financial documents stack up. Of course, there is always going to be separate opinions and when it comes to the agreeing on every aspect within the financial world. However, in order to come to a conclusion between their difference, the decision was made to come together and disclose all of the fair value information off the financial statements, and on the notes as well. In addition, they both are willing to allow companies to record their financial estimates and values at a fair value within their financial statements, rather than require them to have this information. Even though utilizing the fair value is simply a substitution from the historical cost method.

Component depreciation is a particular area of a depreciable asset which may have a different estimated useful life. Component depreciation is general considered as a separate depreciated value, and is normally used by only the IFRS, however the GAAP does sometimes use this type of component depreciation. This type of depreciation would normally be used to view the depreciation as an authorization or allocation of cost over useful life of the assets. Each individual asset must be depreciated separately because of particular areas or groups involved, even though there is sometimes at least one asset which may equal the same number of another assets which makes the both a single unit.

IFRS does allow revaluation of plant assets for their fair value on the date of the reporting. A company which chooses to use the revaluation framework also has to follow the correct procedures of the revaluation. The revaluation is when an organization chooses to use their revaluation and apply it to every one of these assets within their same class. The assets which are having a fast change in pricing must be revalued annually. This revaluation of plant assets is not a requirement; however companies are essentially given a choice as to reappraise plant assets for any additional value.

Product development expenditures are normally processed or recorded as development expenses, and some others are known to call them development costs. Even though the differences are slight, these difference between developing costs and development expenses are when a cost is utilized when payment is issued for goods to develop assets and assets for goods, as in the case of purchasing land, it remains an asset for the company as long as it is owned by the company. An example of an expense might be when the company purchases items, and then that item will depreciate just as a car will, and for the company that will continue to depreciate with time. The land the company will keep on using, there will be basically no additional fees for the usage, and any vehicle needs maintenance, and loses value through the years.

The IFRS defines contingent liability as an obligation which is not recognized on the financial statements. An additional liability may be an issue from an organization’s distant past, such as a court case which depending on the outcome, could become a company’s liability. Now, when it comes to the IFRS, there are certain provisions which are clearly defined as a liability, which depending on the amount or timing, may affect items such as employee pay, vacation pay, ect.

There are differences between IFRS and GAAP, which may seem minimal with regards to accounting for the liabilities, but they are very different. Now, not every company will follow those rules under the GAAP, which may result in their liabilities being listed prior to the assets, which could also show any long term issues that may have come before their current liabilities. IFRS requires an effective interest method, where as GAAP would afford users to use the straight line method. IFRS may not recognize a bond at a premium or discount; however they have to be recognized at least by the net amount of the bond. The preferred stock the IFRS and GAAP both will require is that the preferred stock must be redeemed on an agreed upon time, and be noted as a debt. Conclusion

In summary, it is obvious that there are many similarities between IFRS and the GAAP, even though it may seem that GAAP is not as open on their ideals as IFRS. Because of this, it is possible that IFRS requires more while the GAAP will not use some of the practiced ideas which IFRS uses regular basis.

Financial accounting 7e, John Wiley & Sons, Inc. (2013), required text book reading

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